Smart contracts are applications that can be placed on a blockchain. In essence, a smart contract is a deterministic computer program that is replicated on a blockchain and executed. Deterministic means simply stated: if A then B. Smart contracts therefore make it possible for parties to record the terms of their agreements in unalterable program code which, as soon as the conditions are satisfied ('if A'), will automatically be executed ('then B').
• If the soft drink vending machine registers that the cola is almost finished ('if A'), then in accordance with the smart contract concluded between the operator and supplier, a purchase and supply contract is executed ('then B'). If the soft drink vending machine registers that the cola is almost finished ('if A'), then in accordance with the smart contract, payment automatically takes place ('then B').
• If, based on the information from various linked data files (such as the Persons Database, the land register or the register of a trusted institution) and the findings of the government functionary (see 'Oracles and Smart Contracts'), the smart contract ascertains that all subsidy conditions have been met ('if A'), then in accordance with the smart contract the subsidy is granted ('then B').
This does not involve much ingenuity. Basically, a smart contract does what it has been instructed to do. There is no thought or proactivity involved. The necessary ingenuity must indeed come from the lawyer and others who are involved in formulating the agreements (the agreements must be legally tenable and must set out the purpose of the parties), the programmer of the code (this code may not contain any coding errors and may not be alterable) and everyone jointly in translating the agreements in the code. Because this concerns blockchains, due consideration must be given to various aspects of the alignment between the legal aspect and this specific technology (more about this can be found in our White Paper on the legal aspects of blockchain). We know from experience that working in the blockchain is legally perfectly feasible provided that law and technology work together from the start and are well-attuned to one another.
A smart contract is not actually smart in itself. This is also not necessarily a contract (an agreement) in a legal sense. Various 'guises' are conceivable. Besides agreements, this could for example include making donations, earmarking subsidy funds, issuing a licence or monitoring. Accordingly, this not only involves other private law juridical acts but also administrative juridical acts and forms of administrative law actions in which decision-making, supervision and enforcement merge together as it were. How a smart contract is legally interpreted ultimately depends entirely on the specific application (read more about this in the report on smart contracts as a specific application of the blockchain technology,Smart contracts als specifieke toepassing van de blockchaintechnologie).